Intrinsic value of Fomento Economico Mexicano ADR - FMX

Previous Close

$96.09

  Intrinsic Value

$236.94

stock screener

  Rating & Target

str. buy

+147%

Previous close

$96.09

 
Intrinsic value

$236.94

 
Up/down potential

+147%

 
Rating

str. buy

We calculate the intrinsic value of FMX stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 32.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  28.22
  28.20
  25.88
  23.79
  21.91
  20.22
  18.70
  17.33
  16.10
  14.99
  13.99
  13.09
  12.28
  11.55
  10.90
  10.31
  9.78
  9.30
  8.87
  8.48
  8.13
  7.82
  7.54
  7.28
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
Revenue, $m
  20,242
  25,950
  32,666
  40,438
  49,299
  59,268
  70,351
  82,543
  95,829
  110,191
  125,604
  142,045
  159,489
  177,914
  197,301
  217,638
  238,915
  261,132
  284,292
  308,406
  333,492
  359,573
  386,680
  414,848
  444,121
  474,545
  506,176
  539,073
  573,299
  608,924
  646,025
Variable operating expenses, $m
 
  23,151
  29,075
  35,930
  43,746
  52,539
  62,314
  73,067
  84,786
  97,453
  111,048
  125,287
  140,673
  156,924
  174,024
  191,961
  210,729
  230,324
  250,752
  272,021
  294,147
  317,151
  341,060
  365,905
  391,724
  418,559
  446,459
  475,474
  505,662
  537,085
  569,808
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  18,561
  23,151
  29,075
  35,930
  43,746
  52,539
  62,314
  73,067
  84,786
  97,453
  111,048
  125,287
  140,673
  156,924
  174,024
  191,961
  210,729
  230,324
  250,752
  272,021
  294,147
  317,151
  341,060
  365,905
  391,724
  418,559
  446,459
  475,474
  505,662
  537,085
  569,808
Operating income, $m
  1,681
  2,799
  3,591
  4,508
  5,554
  6,730
  8,037
  9,475
  11,043
  12,737
  14,556
  16,758
  18,816
  20,990
  23,277
  25,676
  28,187
  30,808
  33,540
  36,385
  39,345
  42,422
  45,620
  48,943
  52,396
  55,986
  59,718
  63,599
  67,637
  71,840
  76,217
EBITDA, $m
  2,376
  3,741
  4,709
  5,829
  7,106
  8,543
  10,141
  11,898
  13,813
  15,883
  18,105
  20,475
  22,989
  25,645
  28,440
  31,371
  34,438
  37,640
  40,979
  44,455
  48,071
  51,830
  55,737
  59,798
  64,017
  68,403
  72,962
  77,704
  82,637
  87,772
  93,120
Interest expense (income), $m
  277
  314
  533
  791
  1,089
  1,429
  1,812
  2,237
  2,705
  3,215
  3,766
  4,358
  4,989
  5,658
  6,365
  7,109
  7,890
  8,706
  9,559
  10,448
  11,374
  12,336
  13,337
  14,378
  15,459
  16,582
  17,750
  18,964
  20,226
  21,540
  22,907
Earnings before tax, $m
  1,447
  2,485
  3,058
  3,717
  4,464
  5,301
  6,225
  7,238
  8,338
  9,522
  10,790
  12,401
  13,828
  15,332
  16,912
  18,567
  20,297
  22,101
  23,981
  25,937
  27,971
  30,085
  32,282
  34,565
  36,938
  39,404
  41,968
  44,635
  47,410
  50,300
  53,309
Tax expense, $m
  400
  671
  826
  1,004
  1,205
  1,431
  1,681
  1,954
  2,251
  2,571
  2,913
  3,348
  3,733
  4,140
  4,566
  5,013
  5,480
  5,967
  6,475
  7,003
  7,552
  8,123
  8,716
  9,333
  9,973
  10,639
  11,331
  12,051
  12,801
  13,581
  14,394
Net income, $m
  1,071
  1,814
  2,232
  2,714
  3,259
  3,869
  4,545
  5,284
  6,087
  6,951
  7,877
  9,052
  10,094
  11,192
  12,346
  13,554
  14,817
  16,134
  17,506
  18,934
  20,419
  21,962
  23,566
  25,233
  26,965
  28,765
  30,637
  32,583
  34,610
  36,719
  38,916

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,217
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  27,645
  32,601
  41,038
  50,802
  61,934
  74,458
  88,381
  103,697
  120,388
  138,431
  157,794
  178,449
  200,363
  223,509
  247,866
  273,414
  300,145
  328,055
  357,151
  387,445
  418,960
  451,725
  485,778
  521,166
  557,940
  596,162
  635,900
  677,227
  720,224
  764,980
  811,589
Adjusted assets (=assets-cash), $m
  25,428
  32,601
  41,038
  50,802
  61,934
  74,458
  88,381
  103,697
  120,388
  138,431
  157,794
  178,449
  200,363
  223,509
  247,866
  273,414
  300,145
  328,055
  357,151
  387,445
  418,960
  451,725
  485,778
  521,166
  557,940
  596,162
  635,900
  677,227
  720,224
  764,980
  811,589
Revenue / Adjusted assets
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
Average production assets, $m
  7,046
  9,031
  11,368
  14,072
  17,156
  20,625
  24,482
  28,725
  33,348
  38,346
  43,710
  49,432
  55,502
  61,914
  68,661
  75,738
  83,143
  90,874
  98,934
  107,325
  116,055
  125,131
  134,565
  144,367
  154,554
  165,142
  176,149
  187,597
  199,508
  211,906
  224,817
Working capital, $m
  1,604
  -311
  -392
  -485
  -592
  -711
  -844
  -991
  -1,150
  -1,322
  -1,507
  -1,705
  -1,914
  -2,135
  -2,368
  -2,612
  -2,867
  -3,134
  -3,412
  -3,701
  -4,002
  -4,315
  -4,640
  -4,978
  -5,329
  -5,695
  -6,074
  -6,469
  -6,880
  -7,307
  -7,752
Total debt, $m
  7,059
  11,341
  16,825
  23,171
  30,407
  38,547
  47,597
  57,553
  68,402
  80,130
  92,716
  106,142
  120,386
  135,431
  151,263
  167,869
  185,244
  203,386
  222,298
  241,989
  262,474
  283,771
  305,906
  328,908
  352,811
  377,656
  403,485
  430,347
  458,296
  487,387
  517,683
Total liabilities, $m
  16,908
  21,191
  26,675
  33,021
  40,257
  48,397
  57,447
  67,403
  78,252
  89,980
  102,566
  115,992
  130,236
  145,281
  161,113
  177,719
  195,094
  213,236
  232,148
  251,839
  272,324
  293,621
  315,756
  338,758
  362,661
  387,506
  413,335
  440,197
  468,146
  497,237
  527,533
Total equity, $m
  10,736
  11,410
  14,363
  17,781
  21,677
  26,060
  30,933
  36,294
  42,136
  48,451
  55,228
  62,457
  70,127
  78,228
  86,753
  95,695
  105,051
  114,819
  125,003
  135,606
  146,636
  158,104
  170,022
  182,408
  195,279
  208,657
  222,565
  237,029
  252,079
  267,743
  284,056
Total liabilities and equity, $m
  27,644
  32,601
  41,038
  50,802
  61,934
  74,457
  88,380
  103,697
  120,388
  138,431
  157,794
  178,449
  200,363
  223,509
  247,866
  273,414
  300,145
  328,055
  357,151
  387,445
  418,960
  451,725
  485,778
  521,166
  557,940
  596,163
  635,900
  677,226
  720,225
  764,980
  811,589
Debt-to-equity ratio
  0.658
  0.990
  1.170
  1.300
  1.400
  1.480
  1.540
  1.590
  1.620
  1.650
  1.680
  1.700
  1.720
  1.730
  1.740
  1.750
  1.760
  1.770
  1.780
  1.780
  1.790
  1.790
  1.800
  1.800
  1.810
  1.810
  1.810
  1.820
  1.820
  1.820
  1.820
Adjusted equity ratio
  0.339
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,071
  1,814
  2,232
  2,714
  3,259
  3,869
  4,545
  5,284
  6,087
  6,951
  7,877
  9,052
  10,094
  11,192
  12,346
  13,554
  14,817
  16,134
  17,506
  18,934
  20,419
  21,962
  23,566
  25,233
  26,965
  28,765
  30,637
  32,583
  34,610
  36,719
  38,916
Depreciation, amort., depletion, $m
  695
  942
  1,117
  1,321
  1,553
  1,813
  2,103
  2,422
  2,770
  3,146
  3,549
  3,717
  4,173
  4,655
  5,162
  5,695
  6,251
  6,833
  7,439
  8,070
  8,726
  9,408
  10,118
  10,855
  11,621
  12,417
  13,244
  14,105
  15,001
  15,933
  16,904
Funds from operations, $m
  2,581
  2,755
  3,350
  4,034
  4,812
  5,683
  6,648
  7,707
  8,857
  10,097
  11,426
  12,769
  14,267
  15,847
  17,508
  19,249
  21,068
  22,967
  24,945
  27,004
  29,145
  31,371
  33,684
  36,087
  38,585
  41,181
  43,881
  46,689
  49,610
  52,652
  55,819
Change in working capital, $m
  41
  -68
  -81
  -93
  -106
  -120
  -133
  -146
  -159
  -172
  -185
  -197
  -209
  -221
  -233
  -244
  -255
  -267
  -278
  -289
  -301
  -313
  -325
  -338
  -351
  -365
  -380
  -395
  -411
  -428
  -445
Cash from operations, $m
  2,540
  2,824
  3,430
  4,128
  4,918
  5,802
  6,781
  7,853
  9,016
  10,270
  11,611
  12,966
  14,476
  16,068
  17,741
  19,493
  21,323
  23,233
  25,223
  27,293
  29,446
  31,684
  34,009
  36,425
  38,936
  41,547
  44,260
  47,083
  50,021
  53,079
  56,265
Maintenance CAPEX, $m
  0
  -530
  -679
  -855
  -1,058
  -1,290
  -1,551
  -1,841
  -2,160
  -2,507
  -2,883
  -3,286
  -3,717
  -4,173
  -4,655
  -5,162
  -5,695
  -6,251
  -6,833
  -7,439
  -8,070
  -8,726
  -9,408
  -10,118
  -10,855
  -11,621
  -12,417
  -13,244
  -14,105
  -15,001
  -15,933
New CAPEX, $m
  -1,084
  -1,985
  -2,337
  -2,705
  -3,084
  -3,469
  -3,857
  -4,243
  -4,624
  -4,998
  -5,364
  -5,721
  -6,070
  -6,412
  -6,747
  -7,077
  -7,405
  -7,731
  -8,060
  -8,392
  -8,730
  -9,076
  -9,433
  -9,803
  -10,187
  -10,588
  -11,008
  -11,448
  -11,911
  -12,398
  -12,911
Cash from investing activities, $m
  -1,958
  -2,515
  -3,016
  -3,560
  -4,142
  -4,759
  -5,408
  -6,084
  -6,784
  -7,505
  -8,247
  -9,007
  -9,787
  -10,585
  -11,402
  -12,239
  -13,100
  -13,982
  -14,893
  -15,831
  -16,800
  -17,802
  -18,841
  -19,921
  -21,042
  -22,209
  -23,425
  -24,692
  -26,016
  -27,399
  -28,844
Free cash flow, $m
  582
  309
  414
  568
  776
  1,043
  1,373
  1,769
  2,233
  2,764
  3,364
  3,958
  4,689
  5,484
  6,339
  7,253
  8,224
  9,250
  10,330
  11,463
  12,647
  13,882
  15,168
  16,505
  17,895
  19,338
  20,836
  22,391
  24,005
  25,681
  27,421
Issuance/(repayment) of debt, $m
  1,073
  4,655
  5,484
  6,346
  7,236
  8,141
  9,050
  9,955
  10,849
  11,728
  12,587
  13,425
  14,244
  15,045
  15,831
  16,607
  17,375
  18,142
  18,912
  19,691
  20,485
  21,297
  22,135
  23,002
  23,903
  24,844
  25,829
  26,863
  27,948
  29,091
  30,295
Issuance/(repurchase) of shares, $m
  0
  705
  721
  704
  637
  514
  329
  77
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  676
  5,360
  6,205
  7,050
  7,873
  8,655
  9,379
  10,032
  10,849
  11,728
  12,587
  13,425
  14,244
  15,045
  15,831
  16,607
  17,375
  18,142
  18,912
  19,691
  20,485
  21,297
  22,135
  23,002
  23,903
  24,844
  25,829
  26,863
  27,948
  29,091
  30,295
Total cash flow (excl. dividends), $m
  1,332
  5,668
  6,619
  7,618
  8,649
  9,698
  10,752
  11,801
  13,082
  14,492
  15,950
  17,384
  18,934
  20,529
  22,170
  23,860
  25,599
  27,392
  29,243
  31,154
  33,131
  35,179
  37,302
  39,507
  41,798
  44,182
  46,665
  49,254
  51,954
  54,772
  57,716
Retained Cash Flow (-), $m
  -1,539
  -2,518
  -2,953
  -3,417
  -3,896
  -4,383
  -4,873
  -5,361
  -5,842
  -6,315
  -6,777
  -7,229
  -7,670
  -8,101
  -8,525
  -8,942
  -9,356
  -9,769
  -10,183
  -10,603
  -11,030
  -11,468
  -11,919
  -12,386
  -12,871
  -13,378
  -13,908
  -14,464
  -15,049
  -15,665
  -16,313
Prev. year cash balance distribution, $m
 
  1,844
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  4,994
  3,666
  4,201
  4,753
  5,315
  5,879
  6,441
  7,240
  8,177
  9,173
  10,155
  11,264
  12,428
  13,646
  14,918
  16,243
  17,624
  19,059
  20,551
  22,101
  23,711
  25,384
  27,121
  28,927
  30,805
  32,757
  34,789
  36,904
  39,108
  41,403
Discount rate, %
 
  4.70
  4.94
  5.18
  5.44
  5.71
  6.00
  6.30
  6.61
  6.94
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.77
  11.31
  11.88
  12.47
  13.09
  13.75
  14.44
  15.16
  15.92
  16.71
  17.55
  18.42
  19.35
PV of cash for distribution, $m
 
  4,770
  3,329
  3,610
  3,845
  4,026
  4,145
  4,200
  4,338
  4,469
  4,538
  4,511
  4,454
  4,334
  4,156
  3,927
  3,655
  3,350
  3,022
  2,683
  2,342
  2,010
  1,694
  1,401
  1,137
  904
  704
  536
  399
  290
  206
Current shareholders' claim on cash, %
  100
  97.5
  95.5
  94.0
  92.9
  92.2
  91.8
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7
  91.7

Fomento Economico Mexicano, S.A.B. de C.V. (FEMSA) is a holding company. The Company's segments are Coca-Cola FEMSA, FEMSA Comercio-Retail Division and FEMSA Comercio-Fuel Division. The Company conducts its operations through holding companies, such as Coca-Cola FEMSA, S.A.B. de C.V. and subsidiaries (Coca-Cola FEMSA), which produces, distributes and sells beverages; FEMSA Comercio, S.A. de C.V. and subsidiaries (FEMSA Comercio), which consists of a Retail Division operating various small-format chain stores, and CB Equity LLP, which holds its equity investment in Heineken N.V., and Heineken Holding N.V. The Company's Coca-Cola FEMSA produces, markets, sells and distributes Coca-Cola trademark beverages through standard bottler agreements in certain territories in the countries, in which it operates. Coca-Cola FEMSA also sells bottled water products. FEMSA participates in the retail sector primarily through FEMSA Comercio.

FINANCIAL RATIOS  of  Fomento Economico Mexicano ADR (FMX)

Valuation Ratios
P/E Ratio 1605.2
Price to Sales 84.9
Price to Book 160.1
Price to Tangible Book
Price to Cash Flow 676.8
Price to Free Cash Flow 1180.7
Growth Rates
Sales Growth Rate 28.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 15.9%
Cap. Spend. - 3 Yr. Gr. Rate 4.2%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 62.3%
Total Debt to Equity 65.8%
Interest Coverage 6
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 5.3%
Return On Total Capital 6.8%
Ret/ On T. Cap. - 3 Yr. Avg. 6.5%
Return On Equity 10.7%
Return On Equity - 3 Yr. Avg. 9.8%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 37.1%
Gross Margin - 3 Yr. Avg. 39.5%
EBITDA Margin 12%
EBITDA Margin - 3 Yr. Avg. 13.1%
Operating Margin 8.3%
Oper. Margin - 3 Yr. Avg. 10.2%
Pre-Tax Margin 7.1%
Pre-Tax Margin - 3 Yr. Avg. 8.1%
Net Profit Margin 5.3%
Net Profit Margin - 3 Yr. Avg. 5.8%
Effective Tax Rate 27.6%
Eff/ Tax Rate - 3 Yr. Avg. 28.5%
Payout Ratio 57%

FMX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FMX stock intrinsic value calculation we used $20242 million for the last fiscal year's total revenue generated by Fomento Economico Mexicano ADR. The default revenue input number comes from 2016 income statement of Fomento Economico Mexicano ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our FMX stock valuation model: a) initial revenue growth rate of 28.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.7%, whose default value for FMX is calculated based on our internal credit rating of Fomento Economico Mexicano ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Fomento Economico Mexicano ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of FMX stock the variable cost ratio is equal to 89.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for FMX stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.7% for Fomento Economico Mexicano ADR.

Corporate tax rate of 27% is the nominal tax rate for Fomento Economico Mexicano ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the FMX stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for FMX are equal to 34.8%.

Life of production assets of 13.3 years is the average useful life of capital assets used in Fomento Economico Mexicano ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for FMX is equal to -1.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $10736 million for Fomento Economico Mexicano ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 340.536 million for Fomento Economico Mexicano ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Fomento Economico Mexicano ADR at the current share price and the inputted number of shares is $32.7 billion.

RELATED COMPANIES Price Int.Val. Rating
KOF Coca-Cola Fems 70.48 154.27  str.buy
PEP PepsiCo 118.02 59.61  sell
KO Coca-Cola 46.03 17.04  str.sell
COKE Coca-Cola Bott 216.80 693.72  str.buy

COMPANY NEWS

▶ Fomento Economico posts 3Q profit   [03:35PM  Associated Press]
▶ Mexico's Femsa third-quarter profit jumps 385 pct   [Oct-26-17 06:04PM  Reuters]
▶ FEMSA Announces Third Quarter 2017 Results   [05:05PM  GlobeNewswire]
▶ Fomento Economico Mexicano Sees RS Rating Improve To 73   [03:00AM  Investor's Business Daily]
▶ FEMSA Announces Senior Leadership Succession Plan   [Aug-29-17 09:58PM  Marketwired]
▶ Fomento Economico posts 2Q profit   [12:29AM  Associated Press]
▶ The 4 Best Dividend Stocks in Mexico   [Jul-24-17 12:59PM  Motley Fool]
▶ Stock Market News for May 01, 2017   [May-01-17 09:56AM  Zacks]
▶ Fomento Economico posts 1Q profit   [10:31AM  Associated Press]
▶ FEMSA Files 2016 SEC Annual Report   [Apr-21-17 05:30PM  Marketwired]
▶ FEMSA Shareholders Approved Ps. 8,636 Million Dividend   [Mar-16-17 05:45PM  Marketwired]
▶ [$$] Femsa: A Global Mexican Play   [Mar-11-17 12:36AM  Barrons.com]
▶ Mexicos FEMSA Posts Mixed Earnings   [Mar-01-17 01:28PM  Investopedia]
▶ Stock Market News for February 28, 2017   [Feb-28-17 10:10AM  Zacks]
▶ Fomento Economico posts 4Q profit   [09:42AM  Associated Press]
▶ Barclay's Top 5 Picks for High Return in 2017   [Dec-12-16 04:25PM  at Investopedia]
▶ What Smart Money Has To Say About Novartis AG (ADR) (NVS)   [Dec-05-16 04:11PM  at Insider Monkey]
▶ Hedge Funds Are Betting On Oracle Corporation (ORCL)   [Dec-01-16 12:50PM  at Insider Monkey]
▶ Why Is The Coca-Cola Co (KO) Bleeding Smart Money?   [Nov-23-16 12:11PM  at Insider Monkey]
▶ Mexico Peso Higher: Clinton Tops Trump In New Poll   [Sep-15-16 10:44AM  at Barrons.com]
▶ Ohio Likes Trump, Mexico Peso Dumped   [Sep-14-16 11:29AM  at Barrons.com]
▶ ELAAX, MALTX, PRLAX: 3 South American Equity Mutual Funds   [Aug-30-16 05:55PM  at Investopedia]
Financial statements of FMX
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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